Loan Question

[GeauxMD]

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OK, I never took out any loans for undergrad but obviously am going to be taking out massive amounts next year for med school. I had no idea that Stafford loans were fixed at 6.8% That seems ridiculously high. I always hear people talking about how educational loans are good debt because they are very low interest. Am I missing something, please tell me that the Stafford loans are not really 6.8%.

Also, does the $38,500 max go up every year?

 

[Law2Doc]

OK, I never took out any loans for undergrad but obviously am going to be taking out massive amounts next year for med school. I had no idea that Stafford loans were fixed at 6.8% That seems ridiculously high. I always hear people talking about how educational loans are good debt because they are very low interest. Am I missing something, please tell me that the Stafford loans are not really 6.8%.

Also, does the $38,500 max go up every year?

You are not missing anything. They were much lower interest a few years back.

 

[dutchman]

OK, I never took out any loans for undergrad but obviously am going to be taking out massive amounts next year for med school. I had no idea that Stafford loans were fixed at 6.8% That seems ridiculously high. I always hear people talking about how educational loans are good debt because they are very low interest. Am I missing something, please tell me that the Stafford loans are not really 6.8%.
Also, does the $38,500 max go up every year?

it is 6.8%

 

[GeauxMD]

You are not missing anything. They were much lower interest a few years back.

What happened?

Also, what about the 38.5 figure. Does this go up every year with the rising cost of tuition?

 

[NotThatOne]

What happened?

Also, what about the 38.5 figure. Does this go up every year with the rising cost of tuition?

Seriously doubt that the Stafford loan limit goes up every year.

The interest rate used to be llow (and variable) but the Bush administration made it fixed interest starting this school year. Hopefully, things will change with the democrats in power now. The democrats may try to reduce it, possibly by half (I came across a news article somewhere a few weeks ago).

 

[p9142]

What happened?

this happened . . . .

Supposedly the 110th Congress is going to cut the interest on those loans in half, but I wouldn't hold my breath.

 

[deleted77919]

The $38,500 doesn't change. (Could be changed by legislative changes, etc but there isn't a set policy that the maximum is increased by 5%/yr etc).

 

[ANCAdoc]

The rumors are true....the DEMS want to cut the stafford interest rates in HALF:

(article by LA Times)
http://www.bradenton.com/mld/bradenton/news/local/16110513.htm?source=rss&channel=bradenton_local

It's one of their top priorities, so I imagine they will get it done.

 

[p9142]

The rumors are true....the DEMS want to cut the stafford interest rates in HALF:

(article by LA Times)
http://www.bradenton.com/mld/bradenton/news/local/16110513.htm?source=rss&channel=bradenton_local

It's one of their top priorities, so I imagine they will get it done.

Any ideas on when that would take effect if they are successful? Please say August of 2007 . . . . .

 

[Keg]

Any ideas on when that would take effect if they are successful? Please say August of 2007 . . . . .

Usually July 1 of the year in which the legislation is passed... unless it's passed after July 1. Then they'd probably wait a year.

 

[Supercluster]

What happened?

Also, what about the 38.5 figure. Does this go up every year with the rising cost of tuition?

No, it hasn't gone up in awhile...if you need more loans, which you might if you're attending a private school, you have to obtain private loans on top of the federal loans. Your school can likely point you in the right direction, but in the end it's your choice--you can go with one of the companies like Sallie Mae that actively recruit students, or you can go to your own bank and see if they'll give you a better deal. People do it in lots of different ways. But everyone does it, so try to breathe...it's overwhelming but it'll be okay. Doctors have the lowest rate of defaulting on their loans for a reason--we make enough to pay them back 👍

 

[Non-TradTulsa]

OK, I never took out any loans for undergrad but obviously am going to be taking out massive amounts next year for med school. I had no idea that Stafford loans were fixed at 6.8% That seems ridiculously high. I always hear people talking about how educational loans are good debt because they are very low interest. Am I missing something, please tell me that the Stafford loans are not really 6.8%.

Also, does the $38,500 max go up every year?

You're obviously too young to remember the Carter years when the prime interest rate was 19% at one point!!! Being old gives you some perspective. If you're a traditional student, keep in mind that interest rates since 2001 were the lowest in over 50 years - Greenspan was determined to keep the economy out of a bigger recession than there was post-9/11. Historically, 6.8% for unsecured (albeit government-backed) debt is actually on the low side of reasonable.

No, the $38.5K does not go up every year, nor do I expect it to. It's a nightmare having to take out private loans for your expenses above $38.5K, but if they raised the limit every year whatever incentive medical schools have to try to hold down spiraling student costs would be greatly reduced.

Having said that, however, I do have my fingers crossed that the new Congress will be able to cut that rate in half as they have promised. I'd be even happier if they would just make student loan interest deductible, which it is not (at least, not to any extent that would help a physician) - that's the painful part.

 

[p9142]

The $38,500 doesn't change. (Could be changed by legislative changes, etc but there isn't a set policy that the maximum is increased by 5%/yr etc).

Does anyone know the last time this was changed?

 

[JonnyG]

38500 goes up during clinical years when you are a year round student. It goes to 45000 but get use to private loans the money will get paid back

 

[sanche60]

OK, I never took out any loans for undergrad but obviously am going to be taking out massive amounts next year for med school. I had no idea that Stafford loans were fixed at 6.8% That seems ridiculously high. I always hear people talking about how educational loans are good debt because they are very low interest. Am I missing something, please tell me that the Stafford loans are not really 6.8%.

Also, does the $38,500 max go up every year?

My credit card is like 8 percent, i was tempted to charge it just to get the miles.

 

[Guile]

It's one of their top priorities, so I imagine they will get it done.

This is so laughable.

Sorry that you guys actually have to pay your own interest. It's still a lot lower than private loans. Why should rich(er) people than you pay your way so that you can make $250K+ after you're finished with residency? Cry me a river. You'll appreciate the Bush tax cuts when you're a doctor losing (only) 45% of your income to taxes.

 

[Keg]

Why should rich(er) people than you pay your way so that you can make $250K+ after you're finished with residency? Cry me a river.

Because some of us might not make it to residency without that someone (including ourselves, as taxpayers) paying the interest.

 

[logos]

You're obviously too young to remember the Carter years when the prime interest rate was 19% at one point!!! Being old gives you some perspective. If you're a traditional student, keep in mind that interest rates since 2001 were the lowest in over 50 years - Greenspan was determined to keep the economy out of a bigger recession than there was post-9/11. Historically, 6.8% for unsecured (albeit government-backed) debt is actually on the low side of reasonable.

No, the $38.5K does not go up every year, nor do I expect it to. It's a nightmare having to take out private loans for your expenses above $38.5K, but if they raised the limit every year whatever incentive medical schools have to try to hold down spiraling student costs would be greatly reduced.

Having said that, however, I do have my fingers crossed that the new Congress will be able to cut that rate in half as they have promised. I'd be even happier if they would just make student loan interest deductible, which it is not (at least, not to any extent that would help a physician) - that's the painful part.

Yep...6.8% isnt really that bad. In fact it looks about the same as a home equity loan right now. Seeing as they cant come and take your education away from you and sell it to the highest bidder if you default, its not to shabby.

That being said, 6.8% looks terrible compaired to those that graduated in the last couple of years. Some of them will keep their loans for the maximum time allowed because the rates are so incredibly low, especially if they consolidated every year.

 

[DarksideAllstar]

Dup post

 

[DarksideAllstar]

This is so laughable.

Sorry that you guys actually have to pay your own interest. It's still a lot lower than private loans. Why should rich(er) people than you pay your way so that you can make $250K+ after you're finished with residency? Cry me a river. You'll appreciate the Bush tax cuts when you're a doctor losing (only) 45% of your income to taxes.

That isn't necessarily true, particularly if one stays in academia or does something primary care oriented, where salaries are usually in the neighborhood of 150K (or even less), which don't get me wrong is still quite decent compared to joe blow. Also consider the amount of time (and lost revenue during those additional 7-9 yrs of post undergrad time spent in med school and residency). I don't believe that it is responsible policy to screw over students (I know 6.8% isnt that much, but I think something in the neighborhood of 4% would be more appropriate) who are sacrificing much of their personal lives in order to have "the priviledge" of providing a service to the community, for which they may have the pleasure of being sued at one point in their careers. Loans are meant to encourage more students to pursue grad (and undergrad degrees), so I'm not entirely sure how raising the interest rate helps to accomplish this. Maybe we could spend slightly less overseas and invest more in our own country. Is the river flowing yet?

Edit: Wait til your actually a med student and your staring down the barrel of 100K+ in loans, then tell yourself that 6.8% is fair when you are making $40-50K/yr as a resident and your debt is accumulating.

 

[Sol Rosenberg]

That isn't necessarily true, particularly if one stays in academia or does something primary care oriented, where salaries are usually in the neighborhood of 150K (or even less), which don't get me wrong is still quite decent compared to joe blow. Also consider the amount of time (and lost revenue during those additional 7-9 yrs of post undergrad time spent in med school and residency). I don't believe that it is responsible policy to screw over students (I know 6.8% isnt that much, but I think something in the neighborhood of 4% would be more appropriate) who are sacrificing much of their personal lives in order to have "the priviledge" of providing a service to the community, for which they may have the pleasure of being sued at one point in their careers. Loans are meant to encourage more students to pursue grad (and undergrad degrees), so I'm not entirely sure how raising the interest rate helps to accomplish this. Maybe we could spend slightly less overseas and invest more in our own country. Is the river flowing yet?

Edit: Wait til your actually a med student and your staring down the barrel of 100K+ in loans, then tell yourself that 6.8% is fair when you are making $40-50K/yr as a resident and your debt is accumulating.

Primary care is a choice that you have made (or have implied from your post.) If you want to do primary care than you can take out a smaller amount of loans and/or go to a cheaper school. If you want a lower debt:income ratio, you can choose a different specialty. You are not entitled to choose whatever careeer you want, have low debt, with low interest rates all at the same time.

6.8% is LOW. My first mortgage was 7%, and that was a GREAT deal back in the late 90s. I think my Undergrad Stafford loans crested to 8+% under the old variable rate program, whereupon I decided to pay them off ASAP (with a salary of much less than 150k -- My starting salary as an engineer was more like 50k, which is not that much more than a resident's sealry.) 6.8% fixed is not as bad a deal as people make it out to be. Yes, worse than it was in the "golden years" when intersest rates hit their all time low ~2003-2004 and you could consolidate to a low fixed rate, but not that bad in the grand scheme of things.

And, I currently have greater than 100k in mortgages, so I guess I am allowed to comment under your rules.

 

[ANCAdoc]

6.8% interest is not a good interest rate. Period. I don't care if back in the 90's the interest rate was higher or if the rate back in the Carter era was 20%. The economy wasn't as strong then as it is now.

For those getting home mortgages (essentially what we have in education loans when you consider we get a long time to pay it off), 7% is aweful. These people refinace when the rates go back down. Unfortunately for us, Stafford rates are currently a FIXED 6.8%, not variable with a cap. So even if the rates would have went down normally, we get screwed.

Finally, even if you don't agree 6.8% is a bad interest rate on a long-term loan, I would argue that it is bad for an education loan given by our government.

 

[Sol Rosenberg]

6.8% interest is not a good interest rate. Period. I don't care if back in the 90's the interest rate was higher or if the rate back in the Carter era was 20%. The economy wasn't as strong then as it is now.

For those getting home mortgages (essentially what we have in education loans when you consider we get a long time to pay it off), 7% is aweful. These people refinace when the rates go back down. Unfortunately for us, Stafford rates are currently a FIXED 6.8%, not variable with a cap. So even if the rates would have went down normally, we get screwed.

Finally, even if you don't agree 6.8% is a bad interest rate on a long-term loan, I would argue that it is bad for an education loan given by our government.

Someone needs to re-take economics/history.

The economy in the late 90s was much stronger than it is now (remember the whole high-tech/dot-com boom.) Indeed, interest rates are often high when the economy is flying high because the Fed wants to put the brakes on growth/inflation. The Carter times were an extreme example, and not particularly relevant (except to show that interest rates have been MUCH higher in the past.)

Today, 7% is not good for a home mortgage (the average for a 15 year fixed loan (closest mainstream mortgage to a 10 year fixed Stafford loan) from bankrate.com is 5.44%) but 6.8% for an unsecured student loan vs. 5.44% for a secured home loan is still a pretty good deal. So 6.8% is NOT necessarily "bad period." Like someone else said, 6.8% is tantamount to current home equity loan rates (another SECURED loan, which according to bankrate.com, today range from about 7% - 8% depending on the type -- I'm not as knowledgeable about different home equity loan types as I am about different mortgage types.) Give me an example of another unsecured loan which has better interest rates than 6.8% fixed, and maybe I'll take your claim of:

6.8% interest is not a good interest rate. Period.

...more seriously.

Why would you expect government loans to cost less than private loans? Give me an example of one government program that has less overhead than a comparable private version. Given that 6.8% is already less than what private loans cost, this is miraculous. Remember also that Stafford loans are awarded without regard to NEED OR CREDITWORTHYNESS. Try to get a loan for anywhere near 6.8% with bad/no credit. All of those figures listed above assume excellent credit/a decent credit history. If you are truly in financial need, there are lower-rate government loan programs like Perkins loans, which have a 5% fixed, IIRC.

You are not entitled to free/almost free money just because you chose to pursue additional graduate studies. It's the cost of becoming a doctor, and a path that you chose for yourself. Grow up. 6.8% is still a pretty good deal.

Would I be happy if the new Congress slashes rates? Of course I would, but I'm not disturbed by the current deal, either.

 

[p9142]

I think I agree with the previous poster who said that the best scenario would be if student loan interest was deductible (all interest, not the tiny amount that is currently deductible.)

 

[p9142]

Give me an example of another unsecured loan which has better interest rates than 6.8% fixed, and maybe I'll take your claim of:



...more seriously.

http://www.austinenergy.com/Energy ... Performance with Energy Star/loanOptions.htm
Our low-interest loans are unsecured and do not require a lien on the property. These loans can cover the following costs:

Installation of a new energy-efficient air conditioner or heat pump (14 SEER or greater)
Additional attic insulation
Repair of leaking AC ducts
Caulking around plumbing under sinks
Weather-stripping around doors
Installation of solar shading or awnings
Installation of attic radiant barrier reflective material

 

[ANCAdoc]

Jota-Jota, you obviously don't know what you are talking about. First, governmental Stafford Loans are SECURED loans. There is an entity that backs every Stafford loan (look at your paperwork).

Second, most med students have some form of credit history (credit cards, etc). I'd venture a guess most of us have OK-very good credit. I deserve an interest rate better than 6.8%.

Third, those with low incomes can get 5% loans via LDS or Perkins loans, but these have caps ($5K/yr?). Right, that sure helps a lot considering med school costs 50K.

 

[dpmd]

They made them fixed because they used to be variable with a cap of 8.5%. You are actually getting a better deal this year than you would have under the old rules. Yes, the fixed nature means you won't benefit from any automatic reduction. However, it also means you aren't subject to the same risk of increased rates. This isn't like a mortgage or a car loan where they can get something of value back from you if you decide not to pay. When the 5.4% of people default on this loan, they just lose out on the money. Lending someone money for 6.8% without regard to creditworthiness or income seems pretty damn nice (and low) to me. If you know of a way to get a cheaper loan for as large of an amount as most students take, with all the perks that come with it (deferments while in school, forbearance if you run into trouble) then go ahead and take it. You can always pay off the loans you take now with a cash out refinance or home equity loan once you have some property if the rates are below 6.8%

Remember, this is a program that deals with undergrad students as well as graduate and professional students. It helps a huge number of people get funds for college. Paying it back at a reasonable rate means they can continue to do so. If they were to lower rates, it would mean they would have to either decrease the loan funds available or increase taxes spent on this program.

Jeez, I can't believe the sense of entitlement some people have.

 

[DarksideAllstar]

Primary care is a choice that you have made (or have implied from your post.) If you want to do primary care than you can take out a smaller amount of loans and/or go to a cheaper school. If you want a lower debt:income ratio, you can choose a different specialty. You are not entitled to choose whatever careeer you want, have low debt, with low interest rates all at the same time.

6.8% is LOW. My first mortgage was 7%, and that was a GREAT deal back in the late 90s. I think my Undergrad Stafford loans crested to 8+% under the old variable rate program, whereupon I decided to pay them off ASAP (with a salary of much less than 150k -- My starting salary as an engineer was more like 50k, which is not that much more than a resident's sealry.) 6.8% fixed is not as bad a deal as people make it out to be. Yes, worse than it was in the "golden years" when intersest rates hit their all time low ~2003-2004 and you could consolidate to a low fixed rate, but not that bad in the grand scheme of things.

And, I currently have greater than 100k in mortgages, so I guess I am allowed to comment under your rules.

I am not going into a primary care specialty, so this doesn't necessarily apply to me, I was speaking to the many many people who do end up in primary care. Some people also do not have a choice in which school they end up in, and either suck it up and pay $40K/yr in tuition + living expenses, or don't go to school at all. I am at the second cheapest school for tuition in the country, which alleviates alot of excess debt for me. Many people are not so fortunate. Contrary to what you may believe, 6.8% is a **** rate. I have three credit cards that carry fixed rates at <4%. The question I have is: why is the government trying to make more $$ by raising interest rates on students, and supposedly off of loans funded by tax dollars? Loans are supposed to help make education accessible. Not to say that the current interest rate is prohibitive to obtaining an advanced degree, but I think its unreasonable to cut taxes and screw students (most of whom will rely on large loan $ to get through school) by raising interest rates in order to maintain "fiscal responsibility". By the way, I would consider your ">$100K" in mortgage an investment, whereas I can't take my loan statement and "sell" it when the market is hot and make $20-30K in profit. Enjoy your fixed rate 6.8% loans when you start medical school; 75% of mine are already fixed at 2.6%

 

[Sol Rosenberg]

Jota-Jota, you obviously don't know what you are talking about. First, governmental Stafford Loans are SECURED loans. There is an entity that backs every Stafford loan (look at your paperwork).

Second, most med students have some form of credit history (credit cards, etc). I'd venture a guess most of us have OK-very good credit. I deserve an interest rate better than 6.8%.

Third, those with low incomes can get 5% loans via LDS or Perkins loans, but these have caps ($5K/yr?). Right, that sure helps a lot considering med school costs 50K.

Time to grow up/get into the real world before you tell ME that I don't know what I am talking about.

Well, maybe first you should look up the definition of a secured loan (The frist link from a Google search for "secured loan definition"):

http://www.investorwords.com/5783/secured_loan.html

"A loan which is backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. The assets may be forfeited to the lender if the borrower fails to make the necessary payments."

Mortgages have the house as collateral. Auto loans have the car as collateral. They are SECURED loans. Credit Cards, have no collateral, so they are UNSECURED loans. Likewise with Student Loans. If you default SOMEONE is holding the bag with virtually no real recourse for recovery (i.e. collateral) although the loans cannot be bankrupted, so they are less of a risk for lenders than other unsecured loans.

Not everyone has credit cards and/or a credit history. Not everyone has GOOD credit history. Yet everyone who goes to medical school IS eligible to borrow the max. of unsub. Stafford Loans, even if they have judgements against them and collection agencies ringing their phone off the hook.

 

[Sol Rosenberg]

http://www.austinenergy.com/Energy ... Performance with Energy Star/loanOptions.htm
Our low-interest loans are unsecured and do not require a lien on the property. These loans can cover the following costs:

Installation of a new energy-efficient air conditioner or heat pump (14 SEER or greater)
Additional attic insulation
Repair of leaking AC ducts
Caulking around plumbing under sinks
Weather-stripping around doors
Installation of solar shading or awnings
Installation of attic radiant barrier reflective material

Fair enough. I guess there are some out there, but they relatively rare.

 

[Sol Rosenberg]

Contrary to what you may believe, 6.8% is a **** rate. I have three credit cards that carry fixed rates at <4%.

Which cards? Are you sure it's not prime + 4%? I'm genuinely interested for myself, as I have excellent credit and don't currently have such a good deal (however, I've generally been more interested in perks rather than interest rate as I pay my balance in full each month -- a situation that may/could change when I go to medical school and the terms of the CC offer are right.)

By the way, I would consider your ">$100K" in mortgage an investment, whereas I can't take my loan statement and "sell" it when the market is hot and make $20-30K in profit.

True enough.

Enjoy your fixed rate 6.8% loans when you start medical school; 75% of mine are already fixed at 2.6%

An excellent deal no doubt. You got lucky and were in the right "place" at the right time. Not everyone is entitled to the same deal that you got. Like a previous poster said, under the old program, people would be paying 8+% this year, so people currently taking out loans are actually doing better than they would've under the old program. You were just lucky and took out your loans when interest rates were low. Think of it as winning a mini-lottery, not as something to which you were entitled.

Again, like I said in the previous post, I would certainly be happy if the new Congress lowers rates, but I don't feel entitled to it. I'm glad it won't be at the (immediate) expense of some of the Bush tax cuts, since the lame duck Congress railroaded through my favorite Bush tax cut: The choice to deduct sales tax instead of State Income Tax, but I digress....

EDIT: As for why they are "screwing students" by fixing rates at 6.8%, that seems obvious to me. I'm sure that the program couldn't support itself with people paying fixed interest rates of 2.6% I don't see it as unlikely that 6.8% is the cost of the program, given the nature of the unsecured loans which are offered regardless of creditworthiness, etc.

 

[ANCAdoc]

Jota-Jota, Here you go: http://www.nextstudent.com/stafford_loans/stafford_loans.asp
http://www.northmemorialfcu.com/ASP/Products/product_1_2.asp
Stafford loans are government secured. You can't win this one. Read your loan paperwork more closely. Find out who guarantees the payback. It's listed on your paperwork (in bold on mine).

 

[ANCAdoc]

http://kennedy.senate.gov/downloads/CostReport.pdf

If you glance at this senate report (by the democrats) then it becomes easy to see why a lower interest rate is ideal (for the student and society). Whether you believe it or not, when the student loan interest rate increases, the number of students who will pursue and finish college decreases (see report). Remember, we are not the only ones who take out these loans. Humanities majors take out these loans as well as teachers. Payoff over 30 years is sign. greater at the 6.8% interest rate than what it could be, and hitting the pocketbooks of your typical college grad makes no sense. Education is a right in this country, or at least it should be, regardless of economic standing and ethnicity.

I don't know how anyone on this forum can back a 6.8% stafford interest rate.

 

[dpmd]

Jota-Jota, Here you go: http://www.nextstudent.com/stafford_loans/stafford_loans.asp
http://www.northmemorialfcu.com/ASP/Products/product_1_2.asp
Stafford loans are government secured. You can't win this one. Read your loan paperwork more closely. Find out who guarantees the payback. It's listed on your paperwork (in bold on mine).

Did you bother to look at the rates offered for loans from the northmemorial site? The only loans cheaper than stafford loans were the share secured loan (meaning you have enough money in the credit union account to cover the entire principal of the loan), the 5 yr payback 80% home equity loan, and the low end of the new-and recent year used-car loan. The rate for a loan without credit check and without collateral was 16%.

Yes, stafford loans are "government secured" that is why the government sets the rate. For them the loan is unsecured in the sense that they don't require you to have collateral and there is nothing for them to foreclose on. The private servicer may get their money if you don't pay, but that is only because the government steps in and covers it for you. Their rates are based on the risk they assume by backing these loans, not because they want to "screw over" students. They are actually doing most of them a huge favor in comparison to letting students try to fund their education in the free market (I will concede that some students with great credit, assets, and income might be able to negotiate a better rate with private lenders, but if this is the case there is nothing to stop them from doing that).

 

[ANCAdoc]

Their rates are based on the risk they assume by backing these loans, not because they want to "screw over" students.

Right, and I am supposed to believe this because.....

Their rates are NOT based on the risk they assume by backing stafford loans. Bush and the Republicans wanted to trim some things.

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/03/06/MNGICHJ8391.DTL

"Congress narrowly passed a deficit-reduction bill last month that cut $12 billion from student loan programs, which was signed by the president."
(for what reason??? - for our expensive war in Iraq?? for the tax cuts in which the Treasury had to borrow money??)

"The argument for fixed rates is that they are predictable for students and predictable for the government," said Sandy Baum, a senior policy analyst for the College Board and an economics professor at Skidmore College. But at a time when rates are still relatively low, "the idea that students are paying a higher rate than the market rate is a very unappealing one," she said.

http://money.cnn.com/2006/11/13/magazines/fortune/democrats_student_loans.fortune/index.htm

"It's no secret that change is needed. A just-released report commissioned by the Secretary of Education calls for "complete restructuring of the current federal financial aid system."

"Cost is a major culprit. Tuition has grown at double digits for more than a decade, and federal aid has not kept up, resulting in often crippling levels of student debt. "

"Jon Oberg, who recently retired as a Department of Education researcher, says, "The Higher Education Act has turned into a Student-Loan-Provider Subsidy Act.""

"Under FFELP, the government pays a lender 96 to 98 percent of the interest and principal it is owed should a student default on a loan. The government also guarantees lenders a certain level of income. In effect, the profitability of lenders is regulated by Congress."

 

[dpmd]

I am confused what point you are trying to make.

The first article states this:

"Financial aid experts said the move to a fixed interest rate will be painful for many borrowers in the short term, but could help students if variable rates continue to climb. As recently as the 2000-2001 academic year, the variable rate for Stafford loans exceeded 6.8 percent."

Loans made prior to the change to fixed rate are now at a higher rate than the 6.8%. The price of stability in the long term is a higher rate. Have you never noticed this? It is similar to mortgages in that an adjustable mortgage can give you attractive low rates now, but leave you subject to increases over the next few years (while a fixed rate mortgage would require a higher rate now since the lender is uncertain as to where rates will go in the future). They make you pay for the the benefit of having the lender take on the risk that rates will skyrocket in five years (and they therefore lose on the profit they could have made by lending money at the higher rate).

Are you trying to say that these loans should be made at a loss and be subsidized by taxing people more (or taking money away from other government funded programs)? If so, would you change the eligibility rules so that students have to demonstrate financial need to obtain stafford loans (not just unsubsidized). Otherwise, you end up with some people paying their hard earned money to the government to subsidize the cost of education for:
A. people whose parents could contribute to their education, but choose not to for a variety of reasons
B. people who could pay for school from their savings, or by borrowing against their assets, but choose not to because the stafford loan offers them an opportunity to do other stuff with that money (like invest it, or buy stuff with it)

I have nothing against helping out needy students (although I think private organizations should take the lead on this), but I am very much against turning this loan program into a money losing handout that doesn't even require the student to be needy.

 

[ANCAdoc]

Lenders know they will get their money back, whether the student or gov't pays it back. Given this, there is no risk/very minimal risk to the lender for giving out Stafford Loans. So, why do they need a 6.8% interest rate, which I would contend is fairly high for a governmental educational loan? You (dpmd) content that it is based on risk. I do not believe that is accurate. The gov't sets the rules and I do not believe they take into account risk toward the lender. This will all become clear once the dems cut the rate in half to 3.4%. Based on your argument, this should somehow affect "risk" but I guarantee you that we will not see lenders drop the Stafford program (which would happen if "risk" was a major factor....it simply isn't because the gov't backs all stafford loans).

 

[logos]

I am very much against turning this loan program into a money losing handout that doesn't even require the student to be needy.

I would bet dollars to donuts that it already is a money losing proposition. Afterall, the governement is guaranteing a loan that no private lender in their right mind would make.

Before complaining that 6.8% is a bad rate, thing about this: Why does the US government need to make/guarantee these loans?

 

[ANCAdoc]

I would bet dollars to donuts that it already is a money losing proposition. Afterall, the governement is guaranteing a loan that no private lender in their right mind would make.

Before complaining that 6.8% is a bad rate, thing about this: Why does the US government need to make/guarantee these loans?

You think places like Sallie Mae are loosing out? If they did, they would stop issuing Stafford Loans. Right? The gov't doesn't bully them into issuing the loans!

The government needs to give/back education loans because it is in the best interest of society. With college education costs skyrocketing (increase of more than 50% over the past decade) if the gov't didn't issue/back loans then this country would be in a very bad economic situation.

 

[logos]

You think places like Sallie Mae are loosing out? If they did, they would stop issuing Stafford Loans. Right? The gov't doesn't bully them into issuing the loans!

The government needs to give/back education loans because it is in the best interest of society. With college education costs skyrocketing (increase of more than 50% over the past decade) if the gov't didn't issue/back loans then this country would be in a very bad economic situation.

Of course the private stafford lenders arent losing out. But i'd bet the govenment is. The government dosent bully them, it pays them to do so. However, this is costly, so recently (early 90s) the government started issuing its own loans ("direct loans")

But if 6.8% is so high, why cant students just go to their bank and get a loan for school at a lower rate. Cut the government out of the whole thing.

The truth is that the government is subsidizing a huge discount in these loans for us, so i'm not going to complain. Would I love to have the rates of a few years ago? Absolutely. But I can objectively determine that i'm not being screwed in any way shape or form by taking the rates i'm getting now.

 

[ANCAdoc]

The government should subsidize education, and they do. They could do more, however. The democrats will see to that in this next Congress.

A world without education is not a world where I want to live. The fact is that a 6.8% interest rate will deter qualified college applicants from attending college, assuming they have no family help, etc. One of the links I posted had stats on this.

It's sad that too many people have to struggle just to attend school. Getting an education should not be a burden on the student nor should it be a burden on their family.

 

[Sol Rosenberg]

The government should subsidize education, and they do. They could do more, however. The democrats will see to that in this next Congress.

Great, bring it on (but I wouldn't hold my breath, if I were you.) Everybody loves free money, but that's what this action would be: Free Money. Heck, even the 6.8% loans are currently a little bit of free money, because, under the old program, you would be paying more right now.

A world without education is not a world where I want to live. The fact is that a 6.8% interest rate will deter qualified college applicants from attending college, assuming they have no family help, etc. One of the links I posted had stats on this.

Give me a break. You are horribly without context, and just posturing for attention. How many people were deterred when the rates were 8+%? (Not I, for one.) It's not going to be the end of all education, like you say in your above statement. Common sense dictates that fewer people will be deterred by rates of 6.8% than with rates of 8.5%. Like someone else pointed out, as recently as 2000/2001, rates were as high as 8.5%.

It's sad that too many people have to struggle just to attend school. Getting an education should not be a burden on the student nor should it be a burden on their family.

6.8% loans are not a burden. It's obvious that I can't convince you of that, but you will realize it when it comes time for you to buy a house or obtain some other loan, and interest rates have crested to 10+% (as I'm certain they will at some time during my lifetime.) I'm not sure what you are arguing for? 0% loans? Where should we draw the line? Even 1% loans may be financially prohibitive to SOME families/students. Maybe even 0% loans are prohibitive as well for basket-weaving majors in undergrad (whose future earning potential won't allow them to pay back their principal and live at the same time.) Should we just GIVE these people their education for free? Pricing the loans at their cost seems pretty fair to me, and I'd bet that the cost of the program (dollars lost by the GOVERNMENT due to default) is pretty close (if not more than) 6.8% of dollars lent. That's only about 3.8% per year when adjusted for inflation (~3% per year.) You are not grounded in reality here, my friend.

 

[ANCAdoc]

Right, ask that humanities major if a 6.8% interest rate on education loans is a burden. I can tell by your posts that you only think about yourself and how you will be able to pay your loans off. You don't think about other college students and the burden high interest rates are on them.

When I have some more free time I will post a link that will show you that as interest rates rise on education loans, fewer eligable students attend school. I think one of the links I posted before gave a number.

Jota-Jota, stop compaing education loans secured by the govt to mortgages. I think this shows your lack of knowledge in this area as you are compaing apples to oranges. Two totally different types of loans. I would venture a guess that if you asked 10,000 people in a random survey, at least 90% would agree that edu loans secured by the govt should have a lower interest rate than that of a mortgage.

 

[Sol Rosenberg]

Right, ask that humanities major if a 6.8% interest rate on education loans is a burden. I can tell by your posts that you only think about yourself and how you will be able to pay your loans off. You don't think about other college students and the burden high interest rates are on them.

Where did I say this? I noticed that you didn't answer any one of my direct questions, so I'll go ahead and repeat the major one, only louder this time: IF STAFFORD LOAN RATES SHOULD NOT BE 6.8%, WHAT SHOULD THEY THEN BE? I guarantee you that I will not respond to another of your posts until you answer this question, so if you want to continue this discourse, then please answer my question.

Jota-Jota, stop compaing education loans secured by the govt to mortgages. I think this shows your lack of knowledge in this area as you are compaing apples to oranges. Two totally different types of loans. I would venture a guess that if you asked 10,000 people in a random survey, at least 90% would agree that edu loans secured by the govt should have a lower interest rate than that of a mortgage.

I only keep using mortgages as an example, because they are most likely the lowest rate loans that one will ever have. Obvously people who took out student loans 2-3 years ago are the exception to this, but this has certainly been my experience.

I hate beating dead horses, but it is apparent to me that you still don't understand the concept of a secured loan. This simple economics lesson will probably be completely lost on you, but I'll try anyway.

A mortgage is COMPLETELY secured. If the borrower defaults, the house is foreclosed and sold (often for less than fair market value as the bank only needs to recover the balance of the mortgage to break even.) There is very little risk to the bank (although if property values decline and people default, the market value of the houses may be less than the balance on the loan, so the bank has to eat the difference.) The risk of wealth being destroyed is very low (though not non-existant,) as it is tied to the intrinsic value of the house/property.

Although payment on a Stafford loan to the lending institution is guaranteed by the Federal government, this is still not considered a secured loan, though I can at least understand your confusion about this issue. Suppose we set interest rates on Staffors loans to 0%. If a borrower defaults, the US Government pays the lender, so the lender loses nothing. Who pays the Government? Probably no one, and this wealth is destroyed. The Government needs to borrow more money to cover the losses, and it must incrementally increase interest rates to encourage people to lend it more money. Or, the governemnt could raise the extra money by raising taxes incrementally. To hedge its bets, the Government can/should set the interest rate on the loans so that the interest collected can pay for the cost of default. This is just plain good business, and I, for one, think the Government should act more fiscally responsible. Sure, there are other, better places to start, but there's no need to make things any more broken by setting these interest rates artificially low.

But, like I said, all this is probably lost on you and this will be my last post on the issue because:

1. I bet you won't answer my question from the last post (and this one)
2. It's 3 days to Christmas, and I'm not done with all of my shopping so I don't have a lot of time wo waste here on SDN.

 

[dpmd]

Right, ask that humanities major if a 6.8% interest rate on education loans is a burden. I can tell by your posts that you only think about yourself and how you will be able to pay your loans off. You don't think about other college students and the burden high interest rates are on them.

When I have some more free time I will post a link that will show you that as interest rates rise on education loans, fewer eligable students attend school. I think one of the links I posted before gave a number.

Jota-Jota, stop compaing education loans secured by the govt to mortgages. I think this shows your lack of knowledge in this area as you are compaing apples to oranges. Two totally different types of loans. I would venture a guess that if you asked 10,000 people in a random survey, at least 90% would agree that edu loans secured by the govt should have a lower interest rate than that of a mortgage.

I think you are showing your lack of knowledge by claiming that a loan in which the government has no way of retrieiving value if someone decides to not pay should have a lower interest rate than one in which the lender gets something generally at least equal to the amount in default.

Ask 10,000 people if they want to pay less for just about anything and 90% or more will say yes. Duh. Everyone wants to minimize their costs and maximize their benefits. Ask 10,000 people if they want to pay for someone else to be able to pay less for something and you will get a vastly different answer.

If the cost of education causes someone to change their major from something they can't earn a decent wage at to something they can, fine. Perhaps some people don't think certain majors have any relevance to life and don't feel the need to subsidize someone's education in it. Perhaps it isn't bad if someone who was going to go to a university for basket weaving, instead chooses to start off in community college or reevaluates their life plan.

Finally, I just want to point out once again that the 6.8% rate is lower than the current rate under the variable system. Your situation, and those of many others has improved.

 

[MystikBliss]

this happened . . . .

Supposedly the 110th Congress is going to cut the interest on those loans in half, but I wouldn't hold my breath.

AHAHAHAHAHAHAHAHAHAHAH!!!!!
No really that's the truth. An uneducated ****** like Bush wouldn't understand the importance of keeping our costs low.

 

[Guile]

AHAHAHAHAHAHAHAHAHAHAH!!!!!
No really that's the truth. An uneducated ****** like Bush wouldn't understand the importance of keeping our costs low.

Thanks for your insightful contribution to the discussion. You have so much to offer. 🙄

 

[GeauxMD]

AHAHAHAHAHAHAHAHAHAHAH!!!!!
No really that's the truth. An uneducated ****** like Bush wouldn't understand the importance of keeping our costs low.

I don't think he can really be blamed for this issue. A big part of the problem seems to be the spiraling cost of education. This should concern everyone here because stagnant or declining wages and exponential tuition increases are going to be huge when you look at that $250,000 bill at the end of your four years in school.